France’s National Institute of Statistics and Economic Studies warned that the country is heading towards an economic slowdown before the end of this year after recording economic growth in the third quarter of the year thanks to the Olympic Games that the country recently hosted.
Tourists flocking to Paris for the Olympics have boosted consumer spending in the euro zone’s second-largest economy, providing a boost to businesses battered by political strife following an election that led to a hung parliament in July.
In its latest forecast, the institute said the economy is expected to grow 0.4% in the third quarter, compared to the previous quarter when it grew 0.2%.
He said he expected the Olympics to give a 0.3% boost to the economy, mainly due to ticket sales, television broadcasting rights and tourist spending on hotels and restaurants.
Paris hosted the Olympic Games from July 26 to August 11, and the Paralympic Games from August 28 to September 8.
Inflation decline
The institute expects the economy to shrink by 0.1% in the fourth quarter as the impact of the Olympics fades and France to achieve annual growth of only 1.1%.
However, the decline in inflation will continue to boost household purchasing power, which will help ease some of the spending pressures on them after the Olympics.
The institute expects inflation to remain below 2% for the rest of the year and to reach 1.6% by next December.
Foreign trade and public spending were the main drivers of economic growth in the first half of the year, while domestic demand stalled, the statistics agency said on Monday. It said business investment shrank for three straight quarters and households remained hesitant despite easing inflation.
Commenting on the data, Dorian Rocher, an economist at the National Institute of Statistics, said: “The political situation is clearly creating uncertainty, due to the unknown organization of the budget, as well as due to the reaction of economic agents to these decisions.”
“Households appear to be inclined to consume some of the real income gains while maintaining high savings, and a ‘wait and see’ attitude dominates businesses.”
